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Wednesday, August 18, 2010

WAITING ON OIL AND THE DOLLAR

A while back (I can't remember when, and I'm too lazy to find and link to it) I mentioned that the daily cycle in oil runs about 50-70 days.

The energy sector is one thing weighing on the stock market right now. Oil needs to turn the corner and join stocks in a new uptrend. As soon as oil puts in the cycle bottom it should provide a big boost to the general stock market.

Today's intra-day reversal comes right in the middle of the timing band for a cycle low. If we get a swing low tomorrow there's a good chance the energy markets may be ready to join the party.

Another requirement for rising stocks, in my opinion, is a falling dollar. Bernanke probably realizes by now he isn't going to be able to print prosperity (I've said all along that simply printing money won't heal the economy or create jobs). However I don't expect that to deter him from further debasement of the dollar. He knows that asset inflation is the next best thing, and I have no doubt he will do everything in his power to keep asset markets inflated.

Ultimately this is going to lead to a currency crisis either late this year or early next as the dollar works its way down into the three year cycle low. But I'm confident unintended consequences are the last thing on the Fed's mind at this point. As is invariably the case politicians are only interested in the short term, which is a big reason why we have such huge long term problems right now.

I think we need to see the dollar break back below 82 in order to push the S&P through the 1100 resistance level.

Once we do that then its just a question of when the dollar breaks through long term support at 80. When it does it will fulfill my last two requirements and signal that the 3 year cycle decline now has its hooks in the dollar.

The other signal besides a break of 80 is a left translated intermediate cycle. A break to lower lows anytime in the next 9 weeks will meet that qualification.

If the dollar happens to do that in the next week or two it will form an extreme left translated cycle. And those tend to turn out extremely bad.

1 comment:

For a great deal of the time, since about 1976, the 50 week moving average has acted as pretty good support and resistance in the dollar. That support is right at $80 and it bounced off of it big to the upside about a week ago. If it breaks through that level, it could be curtains for the dollar...which is exactly your level to watch.

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